The Kenya Revenue Authority (KRA) closed the calendar year 2020 on a high after managing to surpass its December collection target and setting the stage for an improved performance this year.
Notwithstanding the challenging economic environment that persisted to the tail end of the year, KRA posted improved revenue performance rate of 101.3% for December 2020. This was the first positive and above target collection rate since the outbreak of Covid-19 pandemic. The improved performance is attributed to the economic recovery following the relaxation of the stringent Covid-19 containment measures and enhanced compliance efforts by KRA in the month of December. The Kenya Revenue Authority collected Ksh. 166 billion against a target of Ksh. 164 billion representing 3.5% growth over the same period last year.
For the month under review, the Customs & Border Control (C&BC) Department recorded the highest ever monthly revenue collection in KRA’s history by collecting Kshs 60.777 billion reflecting a growth of 40.9% and registering a revenue surplus of Kshs 12.191 billion. This resulted in a cumulative surplus for Customs revenue of Kshs 3.788 billion at the end of December 2020 compared to a deficit of Kshs 8.402 billion as at the end of November 2020.
Average daily dry revenue progressively increased to Kshs 1.744 million in December 2020, the highest ever daily average collection for Customs Revenue. Exemptions and remissions in Customs declined by 39.3%, positively impacting the revenue base by Ksh 3.344 billion which is consistent with efforts by Government to address the growth of remissions and exemptions which have undermined revenue mobilisation over the years.
The Domestic Taxes Department also registered the highest collection rate of 91.1% since the start of the covid-19 pandemic. During the month under review, Pay As You Earn (PAYE) taxes recorded the best performance at 99.8% while Withholding Tax surpassed the target by Kshs 725 million reflecting positive economic recovery prospects.
Corporation Taxes recorded a performance rate of 93.5% against the target. The performance was negatively affected by a decline in instalment remittance from banks by 25.3% (from Ksh 13.140 billion in December 2019 down to Ksh 9.810 billion in December 2020).
The Value Added Tax (VAT) domestic remittances declined by 19.9% as purchases accelerated at a faster rate (8.9% growth) than sales (1.4% growth), thereby diminishing the VAT forecast for the month. This decline is expected to reverse as businesses convert the stock to sales and further from the reversal of the rate to 16% effective 1st January 2021.
Last year, KRA’s performance was affected by decelerated economic growth; compounded by the coronavirus pandemic that affected the economy. During the pandemic, the government initiated a raft of fiscal measures to cushion individuals and business entities against the effects of the Covid-19 pandemic. These included but was not limited to: reducing VAT rate from 16% to 14%; slashing the PAYE top marginal rate from 30% to 25%; 100% tax relief for persons earning below Kshs. 24,000 per month; lowering the Corporation Tax rate to 25% from 30%, among others. The revision of these tax rates meant a reduction in the revenue that KRA collects.
Due to the containment and mitigation measures put in place to curb the spread of Covid-19, the economy remained depressed leading to a 5.7 per cent contraction in real GDP in the second quarter of 2020 compared to a 4.9 per cent growth in the first quarter of 2020. In view of the impact of Covid-19, the economy is projected to grow by about 2.6 per cent in 2020, much lower than the 5.4 per cent recorded in 2019.
Looking ahead and with the ongoing implementation of the Post Covid-19 Economic Recovery Strategy 2020-2022, revenue performance is expected to accelerate within forecast rates. KRA has also intensified compliance enforcement efforts by driving the implementation of the new tax measures including digital service tax, minimum alternative tax, voluntary disclosure programme that seeks to waive interest and penalties for taxpayers who disclose and pay taxes that may not have been declared and paid for the last 5 years. KRA is further intensifying the use of a robust intelligence network to curb tax evasion and the use of technology to support tax collection. We are also implementing the web-based anonymous reporting system to enable the public to report tax evasion while remaining anonymous.
The Government is also exploring the deployment of the Tax Appeals Tribunal (TAT) on a full-time basis to expedite resolution of tax disputes which are currently holding more than Ksh. 200 billion.
These measures will support enhanced revenue collection and anchor the much-needed funding by the Government. The KRA Board, Management and Staff appreciate all taxpayers for their resilience despite the difficult economic times and the challenges mainly brought about by the impact of Covid19 pandemic. We look forward to your continued co-operation to enable us mobilise domestic resources for our national development.
Tulipe Ushuru, Tujitegemee!